State of the Union

Posted by Greg L on January 28, 2010 · 1 Comment 

I just finished listening to Obama’s state of the union speech and this is classic Obama.  He’s an effective and excellent speaker, as he’s always been.

As I get past his presentation and look at his positioning, it’s clear that he’s been somewhat chastened by the loss of Ted Kennedy’s seat and will now try to pivot and become a populist.  What we’re really talking about here is perceptions around populism rather than reality as the fact remains that his administration continued the Bush bailout policy and that he brought the Wall Street foxes in the henhouse as  represented mainly by treasury secretary Timothy Geithner and economic advisor Larry Summers.

As Obama lurches towards a populist position, I suspect that he’s going to start looking for a sacrificial lamb to throw under the bus sometime soon.  Tim Geithner looks as if he may be a very good candidate.  He was on the hot seat in a congressional hearing today questioning his role in AIG’s use of $ 62 billion of taxpayer money to funnel to its counterparties on troubled insurance contracts, hence making them whole.  Presumably, these same counterparties would have eaten their losses had it not been for the taxpayer bailing out AIG.  There were a few congressman who flat out called for his resignation, although Geithner claims ignorance of the situation even though he was the chair of the New York fed when all of this was occurring.  That denial is not remotely plausible for someone who was supposedly very much in the midst of managing the bailout and was brought into the administration on the basis of having some sort of continuity in that regard.   Obama has a habit of throwing folks under the bus at the first hint of trouble and I don’t expect that Geithner has a whole lot of time left.   Obama will offer Geithner’s head  on a platter to save his own.

Obama’s main problem is the gap between what was sold during the campaign and what’s gotten delivered.  All of this could have been avoided had the administration pushed hard for reform of Wall Street rather than accommodating them. Now they’ve got to double back and make it appear that they’re reform minded.  As long as they try to “appear to be” rather than “be”, they’ll continue to see falling poll numbers.

As an aside, Bush treasury secretary Henry Paulson’s testimony regarding AIG was that if it had failed, “I believe we would have seen a complete collapse of our financial system and unemployment easily could have risen to the 25% level reached in the Great Depression.”   Currently, the combined rates of the underemployed and unemployed are pushing 20% and the financial system has some very serious near term stresses about to beset it as defaults of option ARM’s, commercial mortgages and possibly state and local government debt begin in earnest.  This really begs the question about what was “averted” and really directs us right back to real issue–taxpayer money and the fed’s quantitative easing  got Wall Street an early exit off the hook while firmly placing the rest of us on the hook.  It is this, more than health care, that’s the administration’s problem.

 

 

 

Filed under Economics, Financial Crisis · Tagged with AIG, Bank Bailouts, Debt Defaults, Henry Paulson, Obama, Option ARMs, Timothy Geithner